CompUSA Closes Stores

To better compete with the big-box and discount retailers, the PC vendor looks to realign.
Author:
Publish date:

RadioShack (RSH) slashed costs by closing hundreds of stores since last year, and last month the company's fourth-quarter profits jumped 64% due to lower costs and higher profit margins.

Now Dallas-based

CompUSA

is hoping for similar results after it closes more than half of its stores over the next three months. This realignment strategy is an attempt improve the company's financial status and maximize margins in its top-performing locations.

The strategy includes major expense reductions, corporate restructuring and a $440 million cash infusion from parent company U.S. Commercial Corp. The closures will leave the company with 103 stores, compared with its current 229.

"Based on changing conditions in the consumer retail electronics market, the company identified the need to close and sell stores with low performance or nonstrategic, old store layouts and locations faced with market saturation," said CompUSA CEO Roman Ross in a statement last week.

The announcement comes at a time when the electronics market has become very competitive, with large retailers

Best Buy

(BBY) - Get Report

and

Circuit City

(CC) - Get Report

, direct marketers

Dell

(DELL) - Get Report

and

Hewlett-Packard

(HPQ) - Get Report

, and discount empires such as

Target

(TGT) - Get Report

all offering cheap electronics.

"By realigning and streamlining operations,

CompUSA can be an organization that can better compete," says spokeswoman Jessica Nunez.

Richard Hastings, retail sector analyst with New York-based Smyth Bernard Sands LLC, predicts the closings will benefit CompUSA in the oversaturated U.S. retail market, where productivity is showing signs of weakness and store closings are becoming more frequent announcements.

Competitor Circuit City last month announced the closure of about 70 stores, also citing market changes as the catalyst.

"There are signs that the electronics store market is shaking out ... but I wouldn't call

the closings a trend," says Hastings.

Scott Rothbort, founder of LakeView Asset Management and a contributor to

StreetInsight

says that regardless of competition, CompUSA has always been one of the weakest electronics retailers, partially because of poor marketing.

"CompUSA hasn't become a destination for a lot of shoppers," he says, adding that companies such as Circuit City made the right decision not to go full force in the computer sales direction.

In addition, significant online shipping from competitors such as

Amazon

(AMZN) - Get Report

, which sell software and peripherals with free shipping, and fast cycles of price deflation -- a natural phenomenon in electronics -- make consumer electronic stores like CompUSA increasingly vulnerable to their own inefficiencies, explains Hastings.

Rothbort says what puts retailers like Best Buy -- which plans to open about 130 new stores in fiscal year 2008 -- ahead of the pack is a focus on customer service. Its Geek Squad, which will set up computer equipment at the customer's home, is especially helpful for the less tech-proficient.

It's doubtful that PC manufacturers will suffer ill effects from retail store closings. "When it comes to the direct selling of computers and peripherals ... you have a 600-pound gorilla, making it somewhat difficult for stores to compete against these giant vendors," says Hastings.